SJC removes intentional breach bar to quantum meruit recovery in construction cases

Issue November/December 2018 November 2018 By Robert F. Callahan Jr.
Complex Commercial Litigation Section Review
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Robert F. Callahan Jr.

In G4S Technology LLC v. Massachusetts Technology Park Corp., SJC-12397 (Mass. June 13, 2018), the Supreme Judicial Court overruled a “rigid” and outdated rule that automatically barred quantum meruit for a party intentionally breaching a construction contract. The ruling requires trial courts to evaluate a quantum meruit claim in the broader context of the entire construction contract.

G4S Technology arose from a construction project that involved building an extensive fiber optic network in western Massachusetts. As with many large infrastructure projects, the completion of the fiber optic network was delayed and the parties assigned fault to each other. The contractor sued the other party to the construction contract, a state development agency, seeking the withheld portion of the contract value and additional compensation for work required to complete the project. Discovery revealed that the contractor intentionally, and repeatedly, submitted false certifications that it was paying its subcontractors on time. Failing to timely compensate the subcontractors breached the construction contract.

Based on this information, the state development agency moved for summary judgment on the contractor’s quantum meruit claim. The motion judge granted summary judgment in favor of the state development agency, holding that the repeated, intentional breaches of contract precluded the contractor from establishing good faith, a prerequisite to quantum meruit recovery. The motion judge relied upon a long line of older decisions enforcing the general rule that intentional breaches of contract are inherently inconsistent with quantum meruit’s good faith requirement, thereby barring recovery. This rule was known as the “Sipley doctrine,” after the 1906 case to which it largely traces its origins.

Leading contract treatises, such as Corbin and Williston, roundly criticized the Sipley doctrine as too severe and limiting to a court’s ability to craft an equitable resolution. Specifically, the rule placed too much emphasis on “clean hands” without considering whether another party received an unjustified windfall. Despite these criticisms and some distinguishing case law, the court had never overruled Sipley, leaving the “rigid” rule in place.

On appeal, the SJC seized the opportunity to finally overrule Sipley. While noting that existing case law supported the motion judge’s analysis, the SJC reversed summary judgment on the contractor’s quantum meruit claim, holding that, “Intentional breaches, even those involving material breaches, alone are not dispositive of the right to equitable relief, at least when such breaches do not relate to the construction work itself.”

In place of the Sipley doctrine, the SJC prescribed a new, broader equity analysis. G4S Technology directs trial courts to consider both parties’ entire contract performance, the various contractual breaches and corresponding damage and, “most importantly,” the project’s value compared to the amount already paid for the work. The SJC summarized the goal of this broader analysis as “balanc[ing] the equities and produc[ing] a just result.”

Applying the new analysis to the case before it, the SJC contemplated circumstances affecting the equity analysis, such as if the state development agency wrongfully withheld the remainder of the contract’s value or caused construction delays. The SJC also emphasized the need for the trial court to consider the relationship between the construction and the contractor’s false certifications and delayed payments to subcontractors. The SJC remanded the case for the trial court to make the necessary factual determinations and reconsider the contractor’s quantum meruit claim.

G4S Technology constitutes a change in construction law and requires parties to construction contracts to reassess their litigation risk with respect to equitable claims. For contractors, the decision opens a door to recovery even when they have intentionally breached a construction contract. But given the number of broad considerations trial courts have at their disposal for rendering just resolutions, the demise of the Sipley doctrine does not necessarily mean contractors will have an easy road to quantum meruit recovery.

Robert F. Callahan Jr. is an associate in the Boston office of Robins Kaplan LLP. His national practice focuses on trial and appellate advocacy in the areas of intellectual property and complex commercial litigation. Callahan is also a graduate of the Massachusetts Bar Association’s Leadership Academy.